B.K. Mehta, J.
1. The assessee is a registered partnership firm and the assessment year under consideration is 1972-73. The assessee-firm has a business of road transport for carriage of goods having its head office at Ahmedabad and branch office at Bombay and Surat. The assessee, in the course of the assessment, claimed expenses of Rs. 16,748 spent for construction of loft admeasuring about 300 to 350 sq. feet in their office premises taken on lease at shops Nos. 4, 5, 6 and 7 in Amir Building, in the City of Bombay. The said premises consisted of ground floor admeasuring about 450 sq. feet. It was claimed by the assessee that the loft was required to be put up in order to accommodate 30 members of the administrative staff.
2. The Income-tax Officer was of the opinion that these expenses were in the nature of capital expenditure and, therefore, could not be properly charged to revenue account. The assessee also claimed a sum of Rs. 3,307 as expenses incurred for supplying tea to the customers. The Income-tax Officer disallowed this claim also.
3. The assessee, therefore, carried the matter in appeal before the Appellate Assistant Commissioner, who confirmed the order of the Income-tax Officer in respect of the disallowance of Rs. 16,748. The Appellate Assistant Commissioner, however, in respect of the entertainment expenses, restricted the disallowance to Rs. 2,000 only.
4. The assessee, therefore, carried the matter in further appeal to the Income-tax Appellate Tribunal. Before the Tribunal, it was urged on behalf of the assessee that after obtaining the office premises in Amir Building, the same were required to be renovated and put on proper shape for which the assessee was required to incur the expenses of Rs. 16,748. On the other hand, the Revenue contended that since a new asset in the nature of addition of a loft, or, in any case, an advantage of enduring benefit came into existence, the impugned expenses are capital in nature and, therefore, the AAC was justified in affirming the order the Income-tax Officer disallowing the said claim. The Tribunal found, as a matter of fact, that the loft was not in the nature of renovation and was altogether a new construction. The Tribunal, however, observed that if the expenses incurred by the assessee were with a view to make the leased premises more suitable for the business purposes, they could not be treated as capital expenses since on surrender of the lease, the assessee could not have taken the benefit with him and would have to leave the premises together with the improvements made therein. The Tribunal, therefore, ruled that the expenses incurred could not be disallowed as capital expenditure. The Tribunal also deleted the addition of Rs. 2,000 on the ground that it did not involve any wasteful expenditure. The Commissioner of Income-tax therefore, prayed for the reference of the following two questions to this court which was granted by the Tribunal :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 16,748 incurred for the loft in rented premises is a revenue expenditure and, therefore, the same could not be disallowed as capital expenditure
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the tea expenses were not in the nature of the entertainment expenditure which could be disallowed under section 37(2B) of the Income-tax Act, 1961 ?'
5. So far as the second question is concerned, since we are concerned with the assessment year 1972-73, the position is concluded by the decision of this court in CIT v. Patel Brothers & Co. : 106ITR424(Guj) . We have, therefore, to answer the question in the affirmative, that is, in favour of the assessee and against the Revenue.
6. The dispute between the Revenue and the assessee as raised by the first question lies in a very short compass though a number of decisions of different High Courts have been cited at the bar. Before we refer to the diverse tests laid down by the courts for purposes of determining the question as to whether a particular item of expense can be legitimately charged to revenue account, or whether it is of a capital nature, we must remind ourselves of the context in which we have been asked to tender our advice on this question. We, however, do not intend to say that this contextual position would clinch the issue. None the less, we must not lose sight of the perspective of the dispute between the Revenue and the assessee. It should be recalled that the assessee had, for purposes of setting up its office at Bombay, taken on lease four shops bearing Nos. 4, 5, 6 and 7 in the building known as Amir Building at Bombay. The assessee had taken these shops on lease in the accounting year 2027 corresponding to the assessment year 1972-73. The shop premises consist only of ground-floor admeasuring 450 sq. feet and, therefore, the assessee, in order to provide adequate accommodation to its staff members numbering as many as 30 constructed a loft admeasuring 300 to 350 sq. feet inside the premises. In other words, the expenses which have been entailed for construction of the loft were neither for extension nor for addition to the premises and were in respect of the construction of the loft inside the premises. It is in this factual perspective that we have to determine as to whether the Tribunal was justified in holding that the expenses of Rs. 16,748 were properl debitable to the revenue account.
7. What is the money wholly and exclusively laid out for the purposes of business is a question which must be determined upon the principles of ordinary commercial trading. In the ultimate analysis, the moot question is as to whether it is the expenditure laid out as a part of the process of profit earning (see Tata Hydro-Electric Agencies Ltd. v. CIT  5 ITR 202). If the expenses are entailed for initiation of business, or for extension of business, or for substantial replacement of equipment, they would be capital in nature. However, in the case of a running business, where they are not entailed for extension of business, or for substantial replacement of equipment, they may be treated as properly attributable to capital when they are made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade/business. If they are not entailed for extension of business or for advantage of the enduring benefit to the business, but made for the purposes of running the business or working it with a view to produce profits, they would be chargeable to revenue account. The aim and object of the expenditure would determine the character of the expenses. It is only in those cases where these tests also fail that the court may consider as to whether the expenditure incurred was a part of the fixed capital of the business, or part of its circulating business (see Assam Bengal Cement Co. Ltd. v. CIT : 27ITR34(SC) ). The words used for qualifying the advantage 'as being of permanent or enduring nature' are not to be understood in the sense that the advantage which would be obtained would last for ever. In certain circumstances, this test of bringing into existence an advantage of enduring nature may not serve the purpose. There may be cases where expenses, even if resulting in the advantage of an enduring benefit, may be properly chargeable to revenue account if the advantage consists merely in facilitating the assessee's trading operations, or enabling him to manage and conduct his business more efficiently or more profitably while leaving the fixed capital untouched (see Empire Jute Co. Ltd. v. CIT : 124ITR1(SC) ). If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit earning process, and not for acquisition of an asset, or a right of a permanent character, the possession of which is a condition of carrying on of the business, the expenditure may by regarded as revenue expenditure (see Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT : 56ITR52(SC) . One of the relevant questions which the court has to ask is that : is the disbursement made for acquisition of a source of profit or income, or is it for facilitating the trading operation, or carrying it on in a more efficient manner (see Empire Jute Co. Ltd.'s case : 124ITR1(SC) ) :
In view of the above settled legal position, we are of the opinion that the Tribunal was justified in treating these expenses as a proper charge on the revenue account for the reason stated hereinafter, over and above those which weighed with the Tribunal.
8. On behalf of the Revenue, the learned standing counsel attempted to persuade us that the Tribunal committed an error of law in treating this amount as a proper charge on the revenue account since it overlooked two important facts which have been clearly established before the income-tax authorities. In the first place, a permanent new loft admeasuring about 300 to 350 sq. feet was brought into existence. It was neither repair nor renovation but altogether a new asset, or, in any case, an advantage or facility which would endure as long as the lease subsisted. Secondly, the original premises admeasured only about 450 sq. feet. The learned counsel invited our attention to the fact, as found by the Tribunal, that this was a new construction though the assessee was claiming before the Income-tax Officer, and has produced some evidence in the nature of part iculars before him that there was an old loft measuring about 10' X 6' which was reinforced and enlarged so as to provide additional floor space. In the submission of the learned counsel for the Revenue, the view of the Tribunal that since these expenses have been entailed in leased premises, they are qualified to be treated as revenue expenses, is an oversimplification of the problem. The expenses entailed on improvement in the leased premises may, in certain circumstances, amount to those of a capital nature. We do see some force in this contention urged on behalf of the Revenue. However, in our opinion, having regard to the aim and purpose of the expense, we are not inclined to agree with the learned counsel for the Revenue that these expenses should be treated as of capital nature since a loft of a substantial floor-space has been constructed and, therefore, an advantage of an enduring nature has come into being. In our opinion, this test of an advantage of enduring nature coming into existence would not be sufficient for answering the present question for the simple reason that the advantage which has been brought into existence may be so integrated with the apparatus of profit making and not as a source of acquiring more profit or income that it can be treated as of capital nature. After everything said and done, what was the assessee seeking to achieve by construction of a loft. Was he seeking to obtain some additional source of profit or income, or was he trying to improve the efficiency by streamlining the working conditions in the office premises In our opinion, the assessee was, by construction of a loft, trying to put the available office space to its optimum use. It is possible to say that the assessee could have, by the arrangement in the original premises, made the seating arrangement of the employees in a cramped way. It cannot be gainsaid that the assessee might have viewed that putting of loft as better arrangement resulting in efficient working of the members of the staff and in his opinion - and we think rightly - for accommodating such a large staff of 30 persons, he has tried to put the available space to its optimum use which would result in greater efficiency by improvement of the working conditions. One of the positive tests indicated by the Division Bench of this court in CIT v. Navsari Cotton and Silk Mills Ltd. : 135ITR546(Guj) , for determining the true character of a given item of expenditure is to find out whether the same has been entailed for increasing efficiency or for removing the inefficiency in the working. We have no doubt, in our mind, that the aim and purpose of this item of expenses entailed in the construction of a loft is to attain greater efficiency and avoid inefficiency that may result by making the administrative staff work in a cramped space. By no stretch of imagination and without violence to the language, can it be urged that the assessee, by constructing the loft, was seeking to bring into existence an asset of a permanent nature because on the surrender of the lease, the option of the lessor of the premises in which the same improvements are made is either to pay compensation and take over the improvement or to permit the lessee to take away and remove the improvement. We do not think, having regard to the nature of the tenure of the lessee in the premises and the internal structural changes made therein, and particularly the sole aim and purpose of such changes, that it can be successfully claimed, what is sought to be claimed by the Revenue, that the expenses are of capital nature. A number of decisions of different High Courts has been cited by both sides before us where the courts have taken the view that if the improvements are made in leased premises, the expenses entailed for effecting the improvements would be properly chargeable to revenue account. We need not cite these decisions in extenso. In the ultimate analysis, it is always a question of fact and a degree, and it does not serve any useful purpose to compare the different cases (see Abdul Kayoom v. CIT : 44ITR689(SC) ). One of the decisions which may be profitably referred in this connection is of the Karnataka High Court in CIT v. Rex Talkies : 148ITR560(KAR) , where the assessee, which was a tenant of a cinema theatre and carrying on business of exhibition of films therein, claimed deduction of the expenditure incurred on repair to the ceiling, flooring and plaster of paris for ceiling and walls and polishing of furniture, fittings, etc., of the theatre. The Income-tax Officer disallowed the claim on the ground that it was of a capital nature, which was affirmed in appeal. However, the Tribunal allowed the appeal of the assessee on the ground that the expenditure was in the nature of current repairs. In that context, the Karnataka High Court found that the test of obtaining advantage of enduring benefit would not clinch the issue, and the aim and purpose of the expenses must be examined, and if the advantage obtained by entailing the expenditure consisted in facilitating the assessee's trading operations, or enabling him to manage and conduct his business more efficiently or more profitably, the expenses should be considered as a proper charge on revenue account.
9. Another decision to which we may refer is of the Delhi High Court in Instalment Supply P. Ltd. v. CIT : 149ITR52(Delhi) , where the assessee holding the sales agency of Tata Mercedes Trucks spent a considerable amount on redesigning, marble flooring, fittings, equipments in the office premises which they were holding on lease for more than 25 years. The expenditure included consultation fees paid to the structural engineer who was engaged for purposes of advising on the safety measures to be adopted in the building. The redesigning comprised conversion of small rooms into a big hall, to make it more suitable for the office purposes. In that fact Situation, the Income-tax Officer allowed only Rs. 7,788 estimated to have been spent for repairs and the balance amount of Rs. 30,000 was disallowed as they were of capital nature. The Appellate Assistant Commissioner, however, accepted the claim of the assessee that they should be treated as revenue expenses. He, therefore, deleted the addition made by the Income-tax Officer. On appeal to the Tribunal by the Department, it was held that the expenses were of capital nature since they were entailed for effecting a complete change of structure which brought into existence advantage of an enduring benefit and, therefore, rightly disallowed by the Income-tax Officer. On a reference, the Division Bench found the approach of the Tribunal was legally erroneous, and the question of the improvements, in the opinion of the Division Bench, ought to have been considered in the larger context of the business necessity or expediency. The conversion of a large number of small rooms into a big hall would make it more suitable for the office purposes, and the expenses were entailed for carrying on the business more efficiently and profitably by the assessee, and particularly when the improvements were made in the leased premises. The advantage obtained by the assessee was for the purposes of business of the assessee, and not for obtaining a capital asset. The High Court, therefore, held that the Tribunal was not right in disallowing the sum of Rs. 30,000.
10. We are in respectful agreement with the principles which have weighed with the Division Bench of the Delhi High Court in viewing the redesigning of the available space of the office premises which they were holding as lessees.
11. In that view of the matter, therefore, we must answer question No. 1 in the affirmative, that is, against the Revenue and in favour of the assessee. In the facts of the case, there should be no order as to costs.